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Which Input Tax Credit is not Available in GST – Why Confusing?
Input Credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs and pay the balance amount.
ITC being the backbone of GST and a major matter of concern for the registered persons, conditions for eligibility to ITC and eligible ITC have been prescribed which is more or less in line with pre- GST regime. These rules are also quite particular and stringent in its approach.
Specific cases are mentioned under GST where no input tax credit shall be available to the applicant. These are mentioned below-
- Motor vehicles & conveyances-
Input tax credit (ITC) is not available for motor vehicles and conveyances even if they are used in the business.
Example: ABC Ltd a manufacturing company buys 3 Motorcycles and 1 truck for transportation of employees (not for goods). ITC for both motorcycle and truck will not be available to ABC Ltd.
Exceptions to ITC on motor vehicles:
- Seller of such motor vehicles and conveyances
M/s Sharma Motors sells new cars. He purchases cars from Car manufacturers. In this case, GST paid on the purchase of car can be used as ITC to pay Output GST liability.
- Transporter of Passengers
M/s Prakash Travels provide passenger transportation by Bus from Delhi to Nagpur. In this case, GST paid on the purchase of Bus can be used as ITC to pay output GST liability.
- Provider of training on driving, flying, navigating Vehicles or conveyances
Right Motor Training School provides driving lessons on Cars. GST paid on the purchase of training Cars can be used as ITC to pay output GST liability.
- For transportation of goods
In the 1st example above, tax paid on the purchase of Truck was not available as ITC to ABC Ltd because the truck was used for the transportation of employees (not passenger). However, if the truck was used for transportation of goods then ITC could have been availed by ABC Ltd.
- Food, beverages, club memberships and others
ITC is not for the supply of following goods or services or both:
- Food and beverages
- Outdoor catering
- Beauty treatment
- Health services
- Cosmetic and plastic surgery
However, ITC will be available if the category of inward and outward supply is same or the component belongs to a mixed or composite supply under GST.
Ajay Enterprises arranges for an office party for its employees. Ajay Enterprises will not be able to claim ITC on the food & beverages served.
- Sale of membership in a club, health, fitness centre-
No ITC will be allowed on any membership fees for gyms, clubs etc.
Example- X, a Managing Director has taken membership of a club and the company pays the membership fees. ITC will not be available to the company or Mr. X.
- Rent-a-cab, Life Insurance and Health Insurance [u/s 17(5)(b)(iii)]
GST paid for rent-a-cab, Life insurance and health insurance can’t be taken as ITC.
- Where the Govt. notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force.
For Example, say govt. mandate employer to insure the health of employees. In such case, GST paid on the purchase of Health insurance will be available as ITC to the employer.
- If you are using above good/services for making an outward taxable supply of same goods or services or both or as an element of a taxable composite or mixed supply.
Example: If A Cab Ltd (Service receiver) uses Cabs of B Cabs Ltd (service provider) for providing rent-a-cab services than GST charges by B Cab Ltd can be used as ITC by A Cab Ltd.
ITC is not available in the case of travel, benefits extended to employees on vacation such as leave or home travel concession.
Example: XYZ Ltd pays for the holidays of the employees. These payments are ineligible ITC.
Note: Payment for a business trip or site visits are eligible ITC.
- Works Contract Services
Works Contract Services when supplied for construction of an immovable property (other than plant and machinery), are ineligible ITC.
Exception: Where work contract service is used as an input service for the further supply of works contract service.
Exception’s Example: X contractor hires Y, a sub-contractor for the construction of a building. Y contractor charges GST on the supply of work contract services. In this case, X contractor can take ITC of GST charged by Y Contractor.
- Constructing an immovable property on own account
ITC of Goods or services or both used for the construction of an immovable property (other than plant or machinery) on own account is not available. ITC will not be available even if such goods or services or both are used in the course or furtherance of business.
Example: X Hosiery constructs a building to be used as a warehouse. GST paid on purchase of goods or services used in the construction of warehouse will not be eligible as ITC.
Exception’s Example: However, If X hosiery construct machinery for weaving than GST paid on purchase of goods or services used in the construction of machinery will be available as ITC.
- Composition Scheme
No ITC would be available to the person who has made the payment of tax under composition scheme in GST law.
ITC of GST paid to composite dealers will not be available to the recipient. Example: X Ltd purchases stationery from a composite dealer. In this case, ITC will not be available to X Ltd.
- Input used by Non Resident taxable person
ITC cannot be availed on goods/services received by a non-resident taxable person. ITC is only available on any goods imported by him.
- Input used for personal consumption
No ITC of Goods or services or both used for personal consumption. However, if goods are used for both personal and business purpose, proportionate ITC for business purpose will be eligible as ITC.
- Goods lost, stolen, destroyed and others
No ITC for goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Tax Credit already availed need to be reversed in case of subsequent loss, theft, destruction etc.
ITC will not be available for any tax paid due to fraud cases which has resulted into –
- Non or short tax payment or
- Excessive refund or
- ITC utilised or
Fraud cases include fraud or willful misstatements or suppression of facts or confiscation and seizure of goods.